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Computer Concepts and Computech

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Please answer questions #2 through #7 and 11-12 at the end of the case.

Please use the attached excel spreadsheet to support the analysis. Please show all of your supporting works in excel.

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The posting has solution to some of the questions in the Computer concepts/Computech case relating to mergers. ONLY QUESTIONS #2 THROUGH #7 AND 11-12

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Please see the Excel attachment.

2. The differences between a hostile merger and a friendly merger are
In a friendly merger, the target firm supports the merger which is not the case in a hostile merger.
In a friendly merger, the target firm voluntarily accepts the merger. In a case of hostile merger, the acquiring firm may need to resort to a tender offer to complete the merger.
Yes, in a hostile merger there may be a greater premium as the acquiring firm tries to make the hostile merger a friendly merger.

3. The cash flows are in the excel file. The reason interest is included, is that in a merger, the acquiring firm would also take the existing debt as also use some new debt. Thus the debt would have different interest rates and would be difficult to incorporate the same in the WACC. Therefore a better method is to explicitly account for interest costs in the calculation of cash flows.

Retained earnings are deducted since we are calculating the cash flows available to the parent company. The target firm would need some cash flows for its growth and so some of the cash flows are retained. The balance cash flows are available to the parent company.

4. The cash flows developed in Question 3 are after interest and so are flows to equity holders. Since these are CCI cash flows, the ...

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